Superannuation industry leaders have given the recommendations from Jeremy Cooper’s review of Australia’s superannuation a vote of approval, saying the push to improve transparency and efficiency within the sector will help unlock billions of savings for Australians saving for their retirement.
But the most controversial recommendation – a push to establish a standardised low-cost, no frills super account to be called MySuper for those workers who don’t care about super – has some in the sector worried, saying the idea may actually entrench apathy towards super.
The recommendations from the Cooper review, which was released by the Government yesterday, focused mainly on three areas: dealing with the disengagement levels of many super fund members, improving “back offices” process in the super system, and tweaking the self-managed super fund regime (covered in detail here and analysed here).
John Brogden, chief executive of the Investment & Financial Services Association praised the moves towards improving the way the super system is managed, contained in a package of reforms called SuperStream.
“If implemented, SuperStream will reduce costs and inefficiencies by moving paper based systems online, creating standard contribution and rollover forms and more frequent contributions,” Mr Brogden said.
He also praised the review’s recommendation to allow super fund members to link their tax file number to their super accounts, which is designed to allow workers to consolidate their super accounts into one account.
“The fact that there are three super accounts for every Australian shows a clear failure in the system. Account consolidation will increase individual’s savings and reduce administration costs.”
The Australian Chamber of Commerce and Industry also welcomed the push to improve the efficiency of the super system, which should also help reduce employers’ administration costs.
However, ACCI chief Peter Anderson said the fact that the SuperStream changes and the savings generated by moving to the MySuper model would generate savings equivalent to a 1% increase in employer-funded super contributions, the need to increase the compulsory superannuation guarantee from 9% was diminished.
“Given that the Cooper Review shows that changes to fees and the way the superannuation industry operates can provide higher retirement incomes, there is now a weaker case to force employers to increase the compulsory 9% levy over the next decade,” Anderson said in a statement.
“In light of the Cooper review and on behalf of hundreds of thousands of small businesses, ACCI calls on the government to now put the proposed employer levy increase to one side, and implement the Cooper Review recommendations before deciding whether to raise the 9% levy or adopt the Henry Review’s preferred alternative of increasing tax concessions.”
However, Anderson joined Australian Industry Group chief Heather Ridout in raising some questions over the MySuper proposal, saying the complexity of employer obligations under the scheme were a concern.
The MySuper idea is based on the premise that there is a large number of workers who simply do not care about their superannuation savings, but should not be exposed to high management fees charged by super funds.
Under the proposal, funds will need to provide a low cost, low frills MySuper option that is similar to the current “balanced” super option, but with better reporting and better security. Cooper estimates the model will help boost the average worker’s retirement savings by 7% or $40,000.
“The fact is there is a substantial body of the community that simply aren’t interested, either by reason of their age, their preferences, their lifestyle, whatever it is, they are simply not going to be reading complex disclosure documents and making choices on what are for most people pretty complex products,” Cooper told The Australian.
However, Brogden describes the proposal as overly “paternalistic” and warns that it could actually lead to increase costs due to the heavy-handed nature of the regulation and compliance obligations associated with the MySuper accounts.
He also argues many super funds already offer low-cost, no-frills funds and says the sector should not simply accept that many workers don’t care about super.
“Not only is MySuper redundant, it is poor public policy,” he says.
“We are failing consumers if we give up on engagement and disclosure by effectively legislating for disinterest and apathy. It dumbs super down to the point that control and choice is removed from members as is disclosure.”
However, KPMG superannuation partner Wayne Hirt said the proposal would help the super system move towards a more user-pays model.
“Removing bundled advice from MySuper and Choice fund products will allow members to choose how much advice they want and pay only for what they want.”
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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